Tag Archives: DOE

How effective are HUD programs? No one knows.

The Department of Housing and Urban Development, or HUD, has been in the news lately due to its policy proposal to ban smoking in public housing. HUD usually flys under the radar as far as federal agencies are concerned so many people are probably hearing about if for the first time and are unsure about what it does.

HUD was created as a cabinet-level agency in 1965. From its website, HUD’s mission:

“…is to create strong, sustainable, inclusive communities and quality affordable homes for all.” 

HUD carries out its mission through numerous programs. On the HUD website over 100 programs and sub-programs are listed. Running that many programs is not cheap, and the graph below depicts the outlays for HUD and three other federal agencies for reference purposes from 1965 – 2014 in inflation adjusted dollars. The other agencies are the Dept. of Energy (DOE), the Dept. of Justice (DOJ), and the Environmental Protection Agency (EPA).

HUD outlays graph

HUD was the second largest agency by outlays in 2014 and for many years was consistently as large as the Department of Energy. It was larger than both the DOJ and the EPA over this period, yet those two agencies are much better known than HUD. Google searches for the DOJ, EPA and HUD return 566 million, 58.3 million, and 25.7 million results respectively.

For such a large agency HUD has managed to stay relatively anonymous outside of policy circles. This lack of public scrutiny has contributed to HUD being able to distribute billions of dollars through its numerous programs despite little examination into their effectiveness. To be fair HUD does make a lot of reports about their programs available, but these reports are often just stories about how much money was spent and what it was spent on rather than evaluations of a program’s effectiveness.

As an example, in 2009 the Partnership for Sustainable Communities program was started. It is an interagency program run by HUD, the EPA, and the Dept. of Transportation. The website for the program provides a collection of case studies about the various projects the program has supported. The case studies for the Euclid corridor project in Cleveland, the South Lake Union neighborhood in Seattle, and the Central Corridor Light Rail project in Minneapolis are basically descriptions of the projects themselves and all of the federal and state money that was spent. The others contain similar content. Other than a few anecdotal data points the evidence for the success of the projects consists of quotes and assertions. In the summary of the Seattle project, for example, the last line is “Indeed, reflecting on early skepticism about the city’s initial investments in SLU, in 2011 a prominent local journalist concluded, “It’s hard not to revisit those debates…and acknowledge that the investment has paid off”. Yet there is no benchmarking in the report that can be used to compare the area before and after redevelopment along any metric of interest such as employment, median wage, resident satisfaction, tax revenue, etc.

The lack of rigorous program analysis is not unique to the Sustainable Communities program. The Community Development Block Grant Program (CDBG) is probably the best known HUD program. It distributes grants to municipalities and states that can be used on a variety of projects that benefit low and moderate income households. The program was started in 1975 yet relatively few studies have been done to measure its efficacy. The lack of informative evaluation of CDBG projects has even been recognized by HUD officials. Raphael Bostic, the Assistant Secretary of the Office of Policy Development and Research for HUD from 2009 – 2012, has stated “For a program with the longevity of the CDBG, remarkably few evaluations have been conducted, so relatively little is known about what works” (Bostic, 2014). Other government entities have also taken notice. During the Bush administration (2001 – 08) the Office of Management and Budget created the Program Assessment Rating Tool (PART). Several HUD programs were rated as “ineffective” – including CDBG – or “moderately effective”. The assessments noted that “CDBG is unable to demonstrate its effectiveness” in developing viable urban communities and that the program’s performance measures “have a weak connection to the program purpose and do not focus on outcomes”.

Two related reasons for the limited evaluation of CDBG and other HUD programs are the lack of data and the high cost of obtaining what data are available. For example, Brooks and Sinitsyn (2014) had to submit a Freedom of Information Act request to obtain the data necessary for their study. Furthermore, after obtaining the data, significant time and effort were needed to manipulate the data into a usable format since they “…received data in multiple different tables that required linking with little documentation” (p. 154).

HUD has significant effects on state and local policy even though it largely works behind the scenes. Regional economic and transportation plans are frequently funded by HUD grants and municipal planning agencies allocate scarce resources to the pursuit of additional grants that can be used for a variety of purposes. For those that win a grant the amount of the grant likely exceeds the cost of obtaining it. For the others, however, the resources spent pursuing the grant are largely wasted since they could have been used to advance the agency’s core mission. The larger the grant the more applicants there will be which will lead to greater amounts of resources being diverted from core activities to pursuing grants. Pursuing government grants is an example of rent-seeking and wastes resources.

Like other federal agencies, HUD needs to do a better job of evaluating its abundant programs. Or better yet, it needs to make more data available to the public so that individual researchers can conduct and duplicate studies that measure the net benefits of its programs. Currently much of the data that are available are usually only weakly related to the relevant outcomes and often are outdated or missing.

HUD also needs to specify what results it expects from the various grants it awards. Effective program evaluation starts with specifying measurable goals for each program. Without this first step there is no way to tell if a program is succeeding. Many of the goals of HUD programs are broad qualitative statements like “enhance economic competitiveness” which are difficult to measure. This allows grant recipients and HUD to declare every program a success since ex post they can use whatever measure best matches their desired result. Implementing measurable goals for all of its programs would help HUD identify ineffective programs and allow it to allocate more scarce resources to the programs that are working.

When Regulatory Agencies Ignore Comments from the Public

A few days ago, the Department of Energy (DOE) finalized a rule setting energy efficiency standards for metal halide lamp fixtures. Last October I wrote a public interest comment to the DOE to point out several problems with the agency’s preliminary economic analysis for the rule. As part of the Administrative Procedure Act, agencies are required to solicit, and respond to, comments from the public before finalizing regulations. Unfortunately, the DOE failed to even acknowledge many of the points I made in my submission.

As evidence, here are some of the main takeaways from my comment:

1)      The DOE claims consumers and businesses are acting in an irrational manner when purchasing metal halide lamp fixtures because they forgo modest long term energy savings in order to pay a low upfront price for lamp fixtures. Yet the agency offers no convincing evidence to support the theory that consumers act irrationally when purchasing metal halide lamp fixtures. At the same time, roughly 70% of the estimated benefits of the rule are the supposed benefits bestowed upon the public when products people would purchase otherwise are removed from the market.

2)      The DOE is currently adding together costs and benefits that occur in the future but that are discounted to present value using different discount rates. It makes no sense to add together costs and benefits calculated in this manner.

3)      The DOE is using a new value of the Social Cost of Carbon (SCC), a way to measure benefits from reducing carbon dioxide emissions, that may be of questionable validity since the analysts who arrived at the estimate ignored recent scientific evidence. Additionally, the DOE is using the new SCC in its analysis before the public has even had a chance to comment on the validity of the new number.

4)      In its analysis, the DOE is including benefits to foreign countries as a result of reduced carbon dioxide emissions, even while the costs of the metal halide lamp fixture regulation will be borne largely by Americans.

Regarding #1 above, the DOE provided no direct response to my comment in the preamble to its final rule. This even though #1 puts in doubt roughly 70% of the estimated benefits of the rule.

The DOE also failed to respond to #2 above, even though I cited as support a very recent and relevant paper on the subject that appeared in a reputable journal and was coauthored by Nobel laureate Kenneth Arrow.

Regarding #3 and #4, the DOE had this to say:

On November 26, 2013, the Office of Management and Budget (OMB) announced minor technical corrections to the 2013 SCC values and a new opportunity for public comment on the revised Technical Support Document underlying the SCC estimates. Comments regarding the underlying science and potential precedential effect of the SCC estimates resulting from the interagency process should be directed to that process. See 78 FR 70586. Additionally, several current rulemakings also use the 2013 SCC values and the public is welcome to comment on the values as applied in those rulemakings just as the public was welcome to comment on the use and application of the 2010 SCC values in the many rules that were published using those values in the past three years.

In other words, the DOE is committed to continuing to use a value of the SCC that may be flawed since the public has the opportunity to complain to the Office of Management and Budget. At the same time, the DOE tells us we can comment on other regulations that use the new SCC value, so that should reassure anyone whose comment the DOE ignored related to this regulation!

All of this is especially troubling since the DOE is required by statute to ensure its energy efficiency rules are “economically justifiable.” It is hard to argue this rule is economically justifiable when roughly 94% of the rule’s benefits are in doubt. This is the proportion of benefits justified on the basis of consumer irrationality and on the basis that Americans should be paying for benefits that will be captured by citizens in other countries. Without these benefits, the rule fails a benefit-cost test according to the DOE’s own estimates.

The requirement that agencies respond to public comments is designed to ensure a level of democratic accountability from regulators, who are tasked with serving the American public. A vast amount of power is vested in these agencies, who are largely insulated from Congressional oversight. As evidence, Congress has only used its Congressional Review Act authority to overrule major regulations once in its history. If agencies ignore the public, and face little oversight from Congress, what faith can we have that regulators will be held accountable for any harms that inevitably arise from poorly designed regulations?

A New Year’s Gift from the Department of Energy

On New Year’s Eve, the Department of Energy (DOE) announced it will be denying a petition brought to the agency by the Landmark Legal Foundation. The petition had requested the DOE reconsider a regulation related to energy efficiency standards for microwave ovens on the grounds that the Energy Department used a new, much higher, estimate of the social cost of carbon (SCC) in the final analysis of the regulation than had been used in the proposed version of the rule. The SCC is a number the Department uses to estimate benefits to society from reductions in greenhouse gas emissions. The public was denied the opportunity to comment on the higher estimate of the SCC since the new estimate was not used until after the time the public was allowed to comment on the regulation.

Here’s some of the DOE’s reasoning for denying the petition:

In the microwave oven rule, the SCC analysis did not affect DOE’s decision regarding the standards that were published in the Federal Register at either the proposed rule or final rule stage because the estimated benefits to consumers of the standard exceeded the costs of the standard, even without considering the SCC values. [emphasis added]

However, as I and others have stated before, these “benefits to consumers” are not benefits at all, and should be excluded from consideration when determining whether the DOE’s energy efficiency standards produce benefits in excess of costs. In a comment I wrote to the DOE as the agency considered this petition, I said:

The preponderance of the rule’s benefits, nearly 80 percent, are not related to reductions in carbon emissions, or even to any environmental effects at all. Instead, these benefits are based on the assumption that consumers behave in an irrational manner when purchasing microwave ovens and that the Department will be able to “fix” this behavior by issuing a regulation, thereby resulting in benefits to consumers. These “savings” should be excluded from the agency’s final analysis of benefits resulting from the regulation.

So the DOE is partly right. The new SCC really doesn’t make a difference in this particular case. However, this is because the regulation produces net costs to society with or without the higher estimate of the social cost of carbon. Thus, the rule can’t be justified on a cost-benefit basis even with the new social cost of carbon number the DOE uses. As I explained in my comment:

Given that the primary estimate of the total benefits resulting from this regulation is estimated at $294 million per year (2011$), and total costs are estimated at $66.4 million per year, subtracting the consumer “irrationality” benefits of $234 million produces net costs to society of $6.4 million per year (2011$).12 If DOE used a lower value of the SCC, like the estimate used in the proposed version of this regulation, that net cost figure would be even higher. The problem is further compounded if benefits to other countries are excluded from the estimates.

The DOE made no effort to respond to this particular critique in its response to the Landmark Legal Foundation petition. The agency does not view the questionable nature of its estimated benefits to consumers as within the scope of the issue it sought comment on. Perhaps this is so. However, there will be more such regulations in the future where this controversial technique is employed by the DOE. Indeed, at Mercatus we have already commented on such regulations. Additionally, the agency’s decision to slip this notice out on New Year’s Eve leads one to question the degree to which the agency is committed to transparent practices. As a result, an inefficient regulation will be implemented and Americans will be made worse off.

 

Energy Efficiency as Foreign Aid?

A recent suite of energy efficiency regulations issued by the Department of Energy (DOE) have been criticized due to the DOE’s claim that consumers and businesses are behaving irrationally when purchasing appliances and other energy using devises. The Department believes it is bestowing benefits on society by “correcting” these faulty decisions. Mercatus Center scholars have written about this extensively here, here, and here.

However, even if we set aside the Department’s claims of consumer and business “irrationality,” a separate rationale for these regulations is also very problematic. The vast majority of the environmental benefits of these rules stem from reductions in CO2 emissions due to lower emissions from power plants. However, in a 2010 report, the US government estimated only 7 to 23 percent of these benefits will be captured by Americans. The rest will go to people in other countries.

Here’s a recent example. In August, the DOE proposed a rule setting energy efficiency standards for metal halide lamp fixtures. In the agency’s analysis, it estimated total benefits from CO2 emission reductions at $1,532 million. Using the more optimistic estimate of the percentage of CO2 related benefits going to the US citizens (23%), Americans should capture about $450 million in environmental benefits from the rule (once we include benefits from reductions in NOx emissions as well). At the same time, the DOE estimates the rule will cost $1,294 million, much of which will be paid by American consumers and businesses. How can the DOE, which is tasked with serving the American public, support such a policy?

One might argue America is imposing costs on the rest of the world with its carbon emissions, and therefore should pay a type of tax to internalize this external cost we impose on others. However, the rest of the world is also imposing costs on us. In fact, US emissions are actually in decline, while global emissions are on the rise.

Even if we assume it is a sensible policy for Americans to compensate other countries for our carbon emissions, is paying for more expensive products like household appliances the best way to accomplish this goal? Given that no amount of carbon dioxide emission reductions in the US will do much of anything to reduce anticipated global warming, wouldn’t the rest of the world be better off with resources to adapt to climate change, instead of (at best) the warm feeling they might get from knowing Americans are buying more expensive microwave ovens? A more efficient policy would be a cash transfer to other countries, or the US could create a fund the purpose of which would be to help other countries adapt to climate change.

Energy efficiency regulations from the DOE are already difficult enough to justify. Knowing they are really just a roundabout form of foreign aid makes these rules look even less sensible.

Do Energy Efficiency Regulations Create Jobs?

Earlier this year, the Department of Energy (DOE) finalized a regulation setting energy efficiency standards for microwave ovens. At the time, Heather Zichal, the Deputy Assistant to the President for Energy and Climate Change, had this to say about the regulation:

…in his State of the Union Address this year, the President set a bold new goal: to cut in half the energy wasted in our homes and businesses over the next 20 years. Part of how we will achieve that goal is by making appliances more energy efficient. Not only will that help Americans keep more money in their pockets, it will also curb pollution and spark innovation that creates jobs and ultimately brings better products to the marketplace. That’s why we are proud to announce today that the Department of Energy has finalized new energy efficiency standards for microwaves… (emphasis added)

I’ve written elsewhere about why Americans should be skeptical of the environmental benefits from this regulation, as well as other energy efficiency regulations emanating from the Department of Energy. Putting that aside for a moment, I’d like to focus on the last part of Ms. Zichal’s comment, that energy efficiency regulations will create jobs.

As an example, let’s look at the microwave oven regulation that Ms. Zichal cites in her blog post. According to the Department of Energy’s own employment analysis, the employment effects of this regulation are negligible. Since American consumers import roughly 99% of microwaves purchased, the DOE expects that effects on domestic production jobs will be virtually zero.

In addition, DOE models indirect employment effects on other industries as a result of changes in consumer behavior and investment decisions resulting from the regulation. While these numbers are highly uncertain given the inherent difficulty in predicting these things, the DOE estimated the rule will probably eliminate jobs in the short term, estimating between 551 jobs destroyed and 17 jobs created by 2016. In the long run, employment effects may be positive, with the regulation potentially creating between 153 and 697 jobs by 2020. However, the DOE notes there are limitations inherent in its model when calculating these effects, especially when trying to predict jobs created years in the future. For example, the DOE states:

Because [the agency’s model] does not incorporate price changes, the employment impacts predicted by [the model] would over-estimate the magnitude of actual job impacts over the long run for this rule.

The DOE goes on:

…in long-run equilibrium there is no net effect on total employment since wages adjust to bring the labor market into equilibrium. Nonetheless, even to the extent that markets are slow to adjust, DOE anticipates that net labor market impacts will be negligible over time due to the small magnitude of the short-term effects.

Creating jobs should never be the primary reason for justifying a regulation.  In most cases, jobs created by regulations are compliance jobs, which constitute a cost of regulating, not a benefit. More importantly, these types of predictions about jobs created and destroyed ignore the true employment costs of regulation that occur when individuals lose their jobs because of a rule. These costs include things like lost earnings, loss of health insurance, stress, additional health effects, etc. Despite this, by the DOE’s own estimates job creation does not appear to be a solid justification for this particular energy efficiency standard.

Do We Need Greater Congressional Oversight of Agency Rulemaking?

Katherine McFate, president of the Center for Effective Government, writes in the Hill that all regulations are based on congressional law, implying that efforts aimed at greater oversight of agency rulemaking are unnecessary. Technically, she is correct – agencies cannot regulate unless they are authorized to do so by congressional statutes. But her assertion is highly misleading. In fact, agencies have considerable discretion to determine policy and to publish rules that fit their as opposed to Congress’s agenda. Thus, Congress is fully justified in its efforts to push for greater agency accountability.

Scholars have long realized that the traditional rulemaking model (or the “transmission belt” model as Richard Stewart called in his seminal article) in which Congress determined policy through legislation and agencies simply filled in the details was far from reality. While constrained by congressional statutes, agencies nonetheless can substantively shape the policies within their jurisdiction.

Agencies have two sources of power in the rulemaking process: the first mover advantage and expertise. Congress over time delegated considerable policymaking powers to agencies through broad open-ended statutes, which meant that agencies did not need to seek congressional approval in order to regulate. In many cases, they can point to existing statutes as a source of their authority. Rather than initiate policy, Congress ends up reacting to the bureaucracy’s regulatory actions. Yet, given how difficult it is for Congress to agree on any legislation, it may be an uphill battle for Congress to overturn a regulation, letting agency decision stand by default.

Expertise is the second source of agency power. Congress defers to agency expertise on many complex regulatory issues. However, agencies engage in what Wendy Wagner called “the science charade” – masking policy decisions as matters of science. As she explains in her article and an edited volume, scientific analysis often drives policy decisions. Through selective use of evidence or assumptions, agencies can push the scientific analysis towards the answer that would yield their preferred policy alternative.

The EPA’s and DOE’s use of social cost of carbon (SCC) in their rulemaking estimates demonstrates the point. The SCC is an estimate of economic damages caused by greenhouse gas emissions. Agencies use the SCC to estimate the benefits of rules aimed at reducing greenhouse gas emissions and consequently to decide whether the rules’ benefits justify the costs. Higher SCC estimate would justify more expansive and costly regulations.

Even though the agencies claim that they derived the SCC through scientific analysis, critics point to policy choices embedded within the analysis that pushed the estimated cost higher. For example, the agencies chose to estimate global rather than domestic impacts of carbon. Similarly, they omitted from their analysis the recent scientific literature, which pointed to a lower impact of greenhouse gases on climate. These and other choices pushed the SCC higher (almost double the previous estimate), allowing agencies to push for more stringent and costly regulations.

Despite the major policy impact of the SCC’s use in rulemaking, the agencies did not have to consult Congress. They could chose to use the SCC estimates under the powers already delegated to them, even in the face of stiff opposition from Congress. In the meantime, congressional efforts to reassert its authority on the major environmental policy issue have stalled. The GOP-led House passed a bill that would prevent the EPA from factoring in the SCC in its economic analysis. Yet, the measure’s fate in the Senate is uncertain and it would still face the presidential veto.

Contrary to McFate’s assertion, agencies do not simply implement congressional policy. As the SCC example demonstrates, agencies can drive major policy decisions without congressional approval. Thus, Congress needs better tools for more effective oversight of agency regulations.

Nudges or Shoves?

David Brooks writes in the New York Times:

I’d say the anti-paternalists win the debate in theory but the libertarian paternalists win it empirically. In theory, it is possible that gentle nudges will turn into intrusive diktats and the nanny state will drain individual responsibility.

But, in practice, it is hard to feel that my decision-making powers have been weakened because when I got my driver’s license enrolling in organ donation was the default option. It’s hard to feel that a cafeteria is insulting my liberty if it puts the healthy fruit in a prominent place and the unhealthy junk food in some faraway corner. It’s hard to feel manipulated if I sign up for a program in which I can make commitments today that automatically increase my charitable giving next year. The concrete benefits of these programs, which are empirically verifiable, should trump abstract theoretical objections.

I agree with Brooks that arguments over nudges should be based on empirical evidence rather than a purely theoretical discussion. So let’s examine the evidence.

As I pointed out in a recent op-ed:

On the federal level, energy efficiency regulations costing billions of dollars are justified by claiming to correct consumers’ irrational choices. Regulators claim that given the lifetime energy savings, rational consumers would demand more efficient vehicles and appliances voluntarily. They take the fact that many consumers are willing to forego efficiency in favor of other attributes, such as style, safety or lower upfront costs, as a clear proof that consumers are irrational. Hence, regulators force consumers to save by reducing their choices.

Below is a list of recent major federal regulations that use behavioral economics arguments to justify government intervention in markets. While far from exhaustive, it should give you some idea as to the magnitude of “intrusive diktats” that are justified using the nudge philosophy. Note that these regulations are not nudges. This is hard paternalism. Federal regulations do not gently push you towards better choices or give you a chance to opt-out. Contrary to Brooks’ assertion, it is not only in theory that “gentle nudges turn into intrusive diktats.”

For comparison, I can think of no major federal policy that actually nudges. When one looks at the evidence, federal regulators give consumers few nudges but plenty of shoves.

Agency Rule Cost (millions)
EPA/DOT Control of Greenhouse Gases from Light-Duty Vehicles

$176,995

EPA/DOT Greenhouse Gas & Fuel Efficiency for Medium/Heavy Duty Vehicles

$9,600

DOE Energy Conservation Program: Small Electric Motors

$514

DOE Energy Efficiency Standards for Pool Heaters and Direct Heating Equipment and Water Heaters

$1,012

DOE Energy Efficiency Standards for Commercial Clothes Washers

$23

DOE Energy Efficiency Standards for Residential Refrigerators and Freezers

$1,849

DOE Energy Efficiency Standards for Microwave Ovens

$1,341

DOE Energy Conservation Program: Energy Conservation Standards for Fluorescent Lamp Ballasts

$425

DOE Energy Conservation Program: Energy Conservation Standards for Distribution Transformers

$289-$351

DOE Energy Conservation Program: Energy Conservation Standards for Battery Chargers and External Power Supplies

$247

DOE Energy Conservation Standards for General Service Fluorescent Lamps and Incandescent Reflector Lamps

$77-$139

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Addendum: Some of these costs are annualized; some are total. There is no consistency in the way they are reported. Agencies report one or the other but not both. In addition, in an earlier version of this post, two figures were transposed. I have now corrected this.

Where Are The Benefits From Recent Energy Efficiency Regulations?

On Tuesday, President Obama gave a speech announcing his new agenda to combat climate change. As part of his efforts to curb greenhouse gas emissions, the President and his administration plan on releasing a series of energy efficiency regulations, supposedly with the intention of reducing carbon dioxide emissions. The problem is, the vast majority of the benefits from many energy efficiency rules have nothing to do with reducing carbon dioxide emissions, and this is according to the government’s own estimates. Instead, agencies like the Department of Energy (DOE) are eliminating options for consumers, and then counting the loss to consumers as a benefit of regulating.

How do they do this? It all has to do with a relatively new field of social science known as behavioral economics. You can think of behavioral economics as the intersection of psychology and economics. Behavioral economists believe that people exhibit many biases that cause them to systematically act in ways that are out of line with their true preferences. In a lab situation, there are many examples of such biases that have been demonstrated. For example, a person buying a home may bid one price, but if she is selling the same house, she may require a higher price, implying she values the same object differently depending on whether the object belongs to her or not. Or, people may value objects differently depending on time. For instance, a person might choose to receive $100 today over $110 tomorrow, yet at the same time pass on $100 a year from now in exchange for $110 in a year and one day, implying the person is more impatient today than he sees himself being in the future.

As the chart below demonstrates, the Department of Energy recently finalized a regulation related to microwave ovens, and nearly 80% of the benefits of the rule stemmed, not from protecting the environment or public health, but from saving consumers money by preventing them from buying the products they would choose otherwise. DOE does not seem to understand why consumers might choose to pay a relatively low price today for a product that is not very energy efficient, when this person could buy a more expensive energy efficient product that will save money over the life of the product through lower electricity bills. From an economics perspective, DOE does not believe this behavior is rational, hence it is like one of the behavioral biases described above, and in many cases DOE has decided to ban the products it doesn’t like in order to protect consumers from themselves.

Energy Efficiency Benefits from DOE Microwave Ovens Regulation*

Capture4

Federal agencies are ignoring the fact that consumers may value other attributes of products aside from energy and fuel efficiency. With automobiles, consumers may prefer larger and safer cars, to smaller more fuel efficient vehicles. Restaurants may prefer light bulbs that raise electric bills slightly every month, but whose warm glow creates an ambiance that customers enjoy. And in the case of microwaves and laundry machines, it may be that machines that use more energy simply work better at their stated purpose. And it’s not just microwave ovens. DOE, and other agencies like the Department of Transportation and the Environmental Protection Agency, make this same type of assumption with other regulations, like rules impacting commercial clothes washers, light bulbs, and fuel efficiency standards for vehicles. Agencies even assume businesses are behaving in this manner. Does anyone honestly believe that trucking companies aren’t taking fuel efficiency into account when buying new fleets? Or that laundromat owners don’t consider electricity costs when purchasing new equipment? It seems highly implausible, but agencies are assuming just that.

For decades, agencies have been required to identify a market failure or other systemic problem that exists before intervening in the marketplace with a regulation. Market failures include things like a lack of competition, a lack of consumer information, or costs that spill over onto the public as the result of a private transaction. Now, agencies like DOE have begun to expand the definition of market failure to include what they deem to be personal failures on the part of consumers.

So why are agencies doing this? One reason may be because the environmental benefits alone aren’t enough to justify the costs of some regulations. Claiming additional benefits helps agencies justify an inefficient policy, and keeps government programs continuing to employ regulators. Agencies have other ways to make the benefits of rules appear greater too. In the case of the microwave rule, of the small portion of benefits related to carbon dioxide reductions, most will be captured by citizens of foreign countries, with only a small fraction going to US citizens. Counting benefits to foreigners makes the benefits of rules appear greater, even though agencies are asked to only consider benefits to the United States in most cases.

Another reason we may be getting these types of rules is the rules may really be intended to benefit special interest groups more than consumers. A manufacturer that is already producing an energy efficient product may capture market share by getting the products of its competitors banned. Or manufacturers may simply want to force consumers to buy a more expensive product, or replace old products with new ones, while eliminating the possibility of a competitor undercutting them by selling a cheaper product in the marketplace.

Reducing Carbon Dioxide emissions in order to combat climate change may be a noble goal, but recent energy efficiency regulations are unlikely to get us there. Rather than overriding consumer choice, and counting this loss to consumers as a benefit, DOE and other agencies should give the American people a more honest assessment of the benefits of their rules.

* Source: Department of Energy, “Technical Support Document: Energy Efficiency Program for Consumer Products and Commercial and Industrial Equipment: Residential Microwave Ovens – Stand-By-Power,” (Table 1.2.1.), May 2013. Calculated using a 3 percent discount rate. Assumes 15 percent of reductions in CO2 emissions are attributed to the United States. This is the midpoint between 7 percent and 23 percent, the range estimated by the Interagency Working Group on Social Cost of Carbon, “Technical Support Document, Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866,” February 2010.